Garrett Motion (GTX) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This part provides Garrett Motion Inc.'s unaudited consolidated interim financial statements and related notes for the periods ended June 30, 2025 Item 1. Financial Statements (Unaudited) This section presents Garrett Motion Inc.'s unaudited consolidated interim financial statements for the periods ended June 30, 2025, including statements of operations, comprehensive income, balance sheets, cash flows, and equity, along with detailed notes explaining accounting policies, financial instruments, debt, and other key financial aspects Consolidated Interim Statements of Operations (Unaudited) This section presents the unaudited consolidated interim statements of operations for the periods ended June 30, 2025 | Metric | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net sales | 913 | 890 | 1,791 | 1,805 | | Gross profit | 181 | 185 | 360 | 357 | | Income before taxes | 102 | 87 | 187 | 168 | | Net income | 87 | 64 | 149 | 130 | | Basic EPS | 0.43 | 0.29 | 0.73 | 0.56 | | Diluted EPS | 0.42 | 0.28 | 0.72 | 0.56 | Consolidated Interim Statements of Comprehensive Income (Unaudited) This section details the unaudited consolidated interim statements of comprehensive income for the periods ended June 30, 2025 | Metric | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net income | 87 | 64 | 149 | 130 | | Foreign exchange translation adjustment | (59) | — | (88) | 18 | | Total other comprehensive (loss) income, net of tax | (170) | 8 | (232) | 49 | | Comprehensive (loss) income | (83) | 72 | (83) | 179 | Consolidated Interim Balance Sheets (Unaudited) This section provides the unaudited consolidated interim balance sheets as of June 30, 2025, and December 31, 2024 | Metric | June 30, 2025 (Millions USD) | December 31, 2024 (Millions USD) | | :-------------------------- | :--------------------------- | :------------------------------- | | Total current assets | 1,363 | 1,193 | | Total assets | 2,403 | 2,276 | | Total current liabilities | 1,319 | 1,278 | | Total liabilities | 3,215 | 2,949 | | Total deficit | (812) | (673) | Consolidated Interim Statements of Cash Flows (Unaudited) This section outlines the unaudited consolidated interim statements of cash flows for the six months ended June 30, 2025 | Metric | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | 214 | 210 | | Net cash (used for) provided by investing activities | (26) | 18 | | Net cash used for financing activities | (89) | (384) | | Net increase (decrease) in cash, cash equivalents and restricted cash | 107 | (161) | | Cash, cash equivalents and restricted cash at end of the period | 233 | 65 | Consolidated Interim Statements of Equity (Deficit) (Unaudited) This section presents the unaudited consolidated interim statements of equity (deficit) for the periods ended June 30, 2025 | Metric | Balance at December 31, 2024 (Millions USD) | Balance at June 30, 2025 (Millions USD) | | :------------------------------------ | :---------------------------------------- | :-------------------------------------- | | Additional Paid-in Capital | 1,213 | 1,226 | | Retained Deficit | (1,653) | (1,517) | | Accumulated Other Comprehensive Income (Loss) | 73 | (159) | | Treasury Stock | (306) | (362) | | Total Deficit | (673) | (812) | - The company reported a net income of $87 million for the three months ended June 30, 2025, and $149 million for the six months ended June 30, 2025, contributing to a reduction in retained deficit[20] - Share repurchases amounted to $52 million for the six months ended June 30, 2025, increasing treasury stock[20] Notes to Consolidated Interim Financial Statements (Unaudited) This section provides detailed notes explaining the accounting policies and key financial aspects of the interim financial statements Note 1. Background and Basis of Presentation This note describes Garrett Motion Inc.'s business, its role as a technology leader, and the basis for its financial statement presentation - Garrett Motion Inc. is a technology leader providing solutions for emission reduction and energy efficiency, specializing in turbocharging, air and fluid compression, and high-speed electric motor technologies for OEMs and distributors in mobility and industrial sectors[22] - The company operates in a single operating and reportable segment, with the CEO making resource allocation and performance decisions on a consolidated basis[24] Note 2. Summary of Significant Accounting Policies This note outlines the significant accounting policies and recent accounting pronouncements adopted or under evaluation by the company - The company adopted ASU 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' prospectively as of January 1, 2025, enhancing transparency around income tax information[27] - The SEC's climate-related disclosure rule (SEC Release No. 33-11275) is being evaluated for its impact on disclosures, though it is currently stayed[28] - ASU 2024-03, 'Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures,' effective for fiscal years beginning after December 15, 2026, is also under evaluation[29] Note 3. Revenue Recognition and Contracts with Customers This note details the company's revenue recognition policies and contract balances with customers | Contract Balances | June 30, 2025 (Millions USD) | January 1, 2025 (Millions USD) | | :------------------------ | :--------------------------- | :----------------------------- | | Contract assets | 51 | 40 | | Contract liabilities | (15) | (8) | Note 4. Research, Development and Engineering This note provides a breakdown of research, development, and engineering costs, including customer reimbursements | RD&E Costs | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Research and development costs | 47 | 46 | 90 | 89 | | Engineering-related expenses, net of customer reimbursements | (2) | (5) | (5) | (4) | | Total RD&E costs | 45 | 41 | 85 | 85 | - Customer reimbursements for engineering-related expenses were $13 million for Q2 2025 and $25 million for YTD 2025[34] - Capitalized contractually reimbursable engineering expenses increased to $40 million as of June 30, 2025, from $29 million at December 31, 2024[35] Note 5. Income Taxes This note presents the company's income tax expense and effective tax rates, explaining key drivers of changes | Tax Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Tax expense (Millions USD) | 15 | 23 | 38 | 38 | | Effective tax rate | 14.7% | 26.4% | 20.3% | 22.6% | - The decrease in the effective tax rate for Q2 2025 was primarily due to a one-time benefit from the revaluation of deferred tax assets in China and the absence of a prior-year gain on equity sale, partially offset by increased U.S. taxes on international operations[37][39] Note 6. Accounts, Notes and Other Receivables—Net This note details the composition of accounts, notes, and other receivables, net of allowance for credit losses | Receivables (Millions USD) | June 30, 2025 | December 31, 2024 | | :------------------------- | :------------ | :---------------- | | Trade receivables | 606 | 521 | | Notes receivable | 67 | 96 | | Other receivables | 53 | 74 | | Less—Allowance for expected credit losses | (5) | (4) | | Total receivables | 721 | 687 | Note 7. Factoring and Notes Receivable This note describes the company's factoring activities and sales of notes receivable without recourse | Receivables Sold (Millions USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Eligible receivables sold without recourse | 190 | 240 | 342 | 402 | | Guaranteed bank notes sold without recourse | 80 | 52 | 96 | 52 | - Expenses related to the sale of trade receivables and guaranteed bank notes were $1 million for Q2 2025 and $2 million for YTD 2025[46] Note 8. Inventories—Net This note provides a breakdown of inventories, including raw materials, work in process, finished products, and reserves | Inventories (Millions USD) | June 30, 2025 | December 31, 2024 | | :------------------------- | :------------ | :---------------- | | Raw materials | 231 | 230 | | Work in process | 22 | 18 | | Finished products | 78 | 79 | | Less—Reserves | (44) | (41) | | Total inventories | 287 | 286 | Note 9. Other Assets This note details the components of other assets, including deferred income taxes and derivatives | Other Assets (Millions USD) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Advanced discounts to customers, non-current | 25 | 29 | | Operating right-of-use assets | 54 | 52 | | Deferred income taxes | 241 | 207 | | Derivatives designated as net investment hedges | 2 | 70 | | Total other assets | 137 | 224 | Note 10. Supplier Financing This note outlines the company's supplier financing obligations and guaranteed bank notes outstanding | Supplier Financing (Millions USD) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Supplier financing obligations outstanding with financial institutions | 76 | 64 | | Guaranteed bank notes outstanding | 154 | 141 | Note 11. Accrued Liabilities This note presents the composition of accrued liabilities, including customer pricing reserves and employee-related costs | Accrued Liabilities (Millions USD) | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Customer pricing reserve | 85 | 77 | | Compensation, benefit and other employee related | 70 | 74 | | Repositioning | 11 | 12 | | Product warranties and performance guarantees - short-term | 15 | 15 | | Designated and undesignated derivatives | 22 | 8 | | Total accrued liabilities | 307 | 299 | - Repositioning accrual activity for the six months ended June 30, 2025, included $5 million in charges and $6 million in cash usage, resulting in a balance of $11 million[54] Note 12. Other Liabilities This note details other liabilities, including income taxes, derivatives, and long-term lease obligations | Other Liabilities (Millions USD) | June 30, 2025 | December 31, 2024 | | :------------------------------- | :------------ | :---------------- | | Income taxes | 90 | 79 | | Designated and undesignated derivatives | 189 | 3 | | Pension and other employee related | 18 | 18 | | Long-term lease liability | 43 | 42 | | Total other liabilities | 380 | 182 | Note 13. Leases This note provides information on lease costs, weighted-average remaining lease terms, and discount rates | Lease Expense (Millions USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | 5 | 4 | 9 | 7 | | Short-term lease cost | 1 | — | 1 | — | | Total lease cost | 6 | 4 | 10 | 7 | - The weighted-average remaining lease term for operating leases was 6.64 years as of June 30, 2025, with a weighted-average discount rate of 6.53%[57] Note 14. Long-Term Debt and Credit Agreements This note describes the company's long-term debt, including recent refinancing activities and compliance with covenants - The company completed an offering of $800 million in 7.75% Senior Unsecured Notes due 2032 on May 21, 2024, using proceeds to repay term loan indebtedness[58][59] - On January 30, 2025, the company refinanced its $692 million 2021 Dollar Term Facility with a new $692 million 2025 Dollar Term Facility due January 30, 2032, bearing interest at Adjusted Term SOFR Rate plus 2.25%[61] - The existing $600 million revolving commitments were replaced with a new $630 million New Revolving Facility maturing on January 30, 2030[62] | Long-Term Debt (Millions USD) | June 30, 2025 | December 31, 2024 | | :---------------------------- | :------------ | :---------------- | | 2025 Dollar Term Facility | 690 | — | | 2032 Senior Notes | 800 | 800 | | Total principal outstanding | 1,491 | 1,493 | | Total long-term debt | 1,460 | 1,464 | - The company was in compliance with all covenants under the 2032 Senior Notes indenture and Credit Agreement as of June 30, 2025[65] Note 15. Equity This note details equity movements, including cash dividends and the share repurchase program - Cash dividends of $0.06 per share were declared on December 5, 2024 ($12 million paid January 31, 2025) and May 1, 2025 ($13 million paid June 16, 2025)[68][69] - A $250 million share repurchase program was authorized for 2025. As of June 30, 2025, $52 million of Common Stock had been repurchased, with $198 million remaining[72] Note 16. Financial Instruments and Fair Value Measures This note provides information on derivative instruments, their notional amounts, and fair value measures | Derivative Instruments (Millions USD) | Notional Amounts (June 30, 2025) | Notional Amounts (December 31, 2024) | Fair Value Assets (June 30, 2025) | Fair Value Liabilities (June 30, 2025) | | :------------------------------------ | :------------------------------- | :----------------------------------- | :-------------------------------- | :----------------------------------- | | Designated forward currency exchange contracts | 520 | 331 | 15 | 13 | | Designated cross-currency swaps | 2,040 | 1,515 | 2 | 173 | | Designated interest-rate swaps | 675 | — | — | 16 | | Undesignated forward currency exchange contracts | 453 | 597 | 1 | 9 | | Total designated and undesignated instruments | 3,688 | 2,913 | 18 | 211 | - The company entered into float-to-fixed interest rate swap contracts with an aggregate notional amount of $675 million in 2025, designated as cash flow hedges[76] - Cross-currency swaps with aggregate notional amounts of €1,381 million ($1,490 million) were designated as net investment hedges for Euro-denominated operations, resulting in a net liability of $123 million as of June 30, 2025[80] Note 17. Accumulated Other Comprehensive Income This note details the components and changes in accumulated other comprehensive income (loss) | AOCI Component (Millions USD) | Balance at December 31, 2024 | Balance at June 30, 2025 | | :---------------------------- | :--------------------------- | :----------------------- | | Foreign Exchange Translation Adjustment | (27) | (115) | | Pension Adjustments | (15) | (15) | | Changes in Fair Value of Effective Cash Flow Hedges | (10) | 9 | | Changes in Fair Value of Net Investment Hedges | 125 | (38) | | Total AOCI | 73 | (159) | - The significant decrease in AOCI from $73 million at December 31, 2024, to $(159) million at June 30, 2025, was primarily driven by foreign exchange translation adjustments and changes in the fair value of net investment hedges[90] Note 18. Earnings Per Share This note presents basic and diluted earnings per share calculations and weighted average shares outstanding | EPS Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | 0.43 | 0.29 | 0.73 | 0.56 | | Diluted EPS | 0.42 | 0.28 | 0.72 | 0.56 | | Weighted average common shares outstanding – Basic | 202,672,945 | 224,321,948 | 203,886,530 | 230,493,039 | | Weighted average common shares outstanding – Diluted | 205,255,033 | 225,898,814 | 206,433,975 | 232,455,083 | Note 19. Commitments and Contingencies This note discusses the company's legal proceedings, claims, and warranty obligations - The company is involved in various lawsuits and claims but does not currently believe they will have a material adverse effect on its financial position[93] - An estimated $25 million loss contingency related to a Brazilian tax matter is not accrued as the liability is not considered probable[94] | Warranty and Product Performance Guarantees (Millions USD) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | 23 | 27 | | Accruals for warranties/guarantees issued during the period | 6 | 5 | | Settlement of warranty/guarantee claims | (8) | (6) | | Balance at end of period | 23 | 25 | Note 20. Pension Benefits This note provides information on pension plan contributions and net periodic benefit costs - The company expects to contribute approximately $5 million to its non-U.S. pension plans in 2025, with $2 million already contributed as of June 30, 2025[99] | Net Periodic Benefit Costs (Millions USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Service cost | 2 | 2 | 4 | 3 | | Interest cost | 3 | 3 | 6 | 7 | | Expected return on plan assets | (4) | (4) | (8) | (8) | | Total | 1 | 1 | 1 | 1 | Note 21. Segments and Concentrations This note details net sales by geographic region and product line, and capital expenditures - The company operates as a single operating and reportable segment, with the CEO reviewing consolidated net income for performance assessment and resource allocation[101] | Net Sales by Region (Millions USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | 178 | 174 | 354 | 352 | | Europe | 461 | 434 | 886 | 903 | | Asia | 250 | 263 | 507 | 515 | | Other International | 24 | 19 | 44 | 35 | | Total | 913 | 890 | 1,791 | 1,805 | | Net Sales by Product Line (Millions USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Diesel | 217 | 220 | 425 | 461 | | Gas | 398 | 375 | 801 | 763 | | Commercial Vehicle | 170 | 161 | 325 | 322 | | Aftermarket | 111 | 121 | 209 | 233 | | Other | 17 | 13 | 31 | 26 | | Total | 913 | 890 | 1,791 | 1,805 | - Capital expenditures were $15 million for Q2 2025 and $41 million for YTD 2025[105] Note 22. Acquisitions and Divestitures This note describes the company's divestiture of an equity interest in an unconsolidated joint venture - On April 3, 2024, the company divested its equity interest in an unconsolidated joint venture for approximately $58 million, recognizing a pre-tax gain of $27 million[106] Note 23. Subsequent Events This note discloses significant events occurring after the reporting period, including tax law changes and dividend declarations - On July 4, 2025, the United States enacted H.R. 1, introducing changes to federal tax law, which the company is currently evaluating for its implications[109] - On July 24, 2025, the Board of Directors declared a cash dividend of $0.06 per share of Common Stock, payable on September 16, 2025[109] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition for the three and six months ended June 30, 2025, highlighting key drivers of revenue, expenses, profitability, and liquidity, including the impact of macroeconomic challenges, strategic initiatives, and non-GAAP measures Executive Summary This section provides a high-level overview of the company's financial performance, strategic achievements, and key operational highlights for the quarter - For Q2 2025, the company achieved Net income of $87 million and Adjusted EBIT of $124 million, navigating macroeconomic challenges[112] - Increased demand in light vehicle gasoline, driven by new program launches in Europe, North America, and India, was partially offset by declines in light vehicle volumes in Europe and decreased aftermarket demand in North America[112] - Strategic successes include winning a significant E-Turbo program in Europe, securing serial production for a Fuel cell compressor by a leading Asian OEM, and positive testing feedback for the E-Cooling Compressor[113] - The company repurchased $22 million of Common Stock in Q2 2025, with $198 million remaining under the share repurchase program[114] Disaggregated Revenue This section presents a detailed breakdown of the company's net sales by geographic region and product line | Revenue by Region | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :---------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | United States | 178 (20%) | 174 (19%) | 354 (20%) | 352 (19%) | | Europe | 461 (50%) | 434 (49%) | 886 (49%) | 903 (50%) | | Asia | 250 (27%) | 263 (30%) | 507 (28%) | 515 (29%) | | Other | 24 (3%) | 19 (2%) | 44 (3%) | 35 (2%) | | Total | 913 | 890 | 1,791 | 1,805 | | Revenue by Product Line | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :---------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Diesel | 217 (24%) | 220 (25%) | 425 (24%) | 461 (26%) | | Gas | 398 (43%) | 375 (42%) | 801 (45%) | 763 (42%) | | Commercial Vehicle | 170 (19%) | 161 (18%) | 325 (18%) | 322 (18%) | | Aftermarket | 111 (12%) | 121 (14%) | 209 (11%) | 233 (13%) | | Other | 17 (2%) | 13 (1%) | 31 (2%) | 26 (1%) | | Total | 913 | 890 | 1,791 | 1,805 | Results of Operations for the Three and Six Months Ended June 30, 2025 This section analyzes the company's financial performance, including revenue, expenses, and profitability, for the three and six months ended June 30, 2025 Net Sales This section analyzes the drivers of changes in net sales for the three and six months ended June 30, 2025 | Metric | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net sales | 913 | 890 | 1,791 | 1,805 | | % change | 2.6% | | (0.8)% | | - Q2 2025 net sales increased by $23 million (3%) year-over-year, primarily due to favorable foreign currency translation ($23 million or 3%) and recoveries on import tariffs, with strong demand in gasoline and commercial vehicle applications partially offset by weaker aftermarket and diesel sales[121] - YTD 2025 net sales decreased by $14 million (1%) year-over-year, mainly due to soft demand in diesel and aftermarket sales, partially offset by higher demand for gasoline and commercial vehicle applications, import tariff recoveries, and favorable foreign exchange impacts[126] Cost of Goods Sold and Gross Profit This section discusses the factors influencing cost of goods sold and gross profit for the reporting periods | Metric | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :-------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Cost of goods sold | 732 | 705 | 1,431 | 1,448 | | % change | 3.8% | | (1.2)% | | | Gross profit percentage | 19.8% | 20.8% | 20.1% | 19.8% | - For Q2 2025, gross profit decreased by $4 million, primarily due to $25 million of unfavorable product mix and $2 million of pricing, net of inflation pass-through, partially offset by $9 million from foreign currency impacts and $9 million of productivity[132] - For YTD 2025, gross profit increased by $3 million, driven by $25 million of productivity, $13 million of commodity, transportation and energy deflation, and $2 million of pricing, partially offset by $32 million from unfavorable product mix and $6 million of lower sales volumes[134] Selling, General and Administrative Expenses This section analyzes the changes in selling, general, and administrative expenses and their impact on profitability | SG&A Expenses (Millions USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Selling, general and administrative expense | 59 | 61 | 118 | 125 | | % of sales | 6.5% | 6.9% | 6.6% | 6.9% | - SG&A expenses decreased by $2 million for Q2 2025, mainly due to lower personnel costs, and by $7 million for YTD 2025, driven by lower personnel costs and legal fees[135][136] Other Expense, Net This section details the components and changes in other expense, net, for the reporting periods | Other Expense, Net (Millions USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Other expense, net | 1 | 3 | 8 | 4 | - Other expense, net decreased by $2 million for Q2 2025 due to lower professional fees in the prior year. For YTD 2025, it increased by $4 million, primarily due to $6 million in professional fees related to the Restatement Agreement[138][139] Interest Expense This section discusses the changes in interest expense, primarily driven by debt refinancing and amortization | Interest Expense (Millions USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest expense | 25 | 62 | 54 | 93 | - Interest expense decreased by $37 million for Q2 2025 and $39 million for YTD 2025, primarily due to a reduction in debt issuance cost amortization and lower interest expense from changes in the notional amount of debt outstanding[140][141] Non-Operating Income, Net This section analyzes the factors contributing to non-operating income, net, including foreign exchange gains | Non-Operating Income, Net (Millions USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Non-operating income, net | (6) | (1) | (7) | (6) | - Non-operating income increased for both Q2 and YTD 2025, primarily driven by foreign exchange transactional gains[142][143] Tax Expense This section explains the company's tax expense and effective tax rate, including the impact of specific events and new regulations | Tax Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Tax expense (Millions USD) | 15 | 23 | 38 | 38 | | Effective tax rate | 14.7% | 26.4% | 20.3% | 22.6% | - The effective tax rate decreased for Q2 2025 due to a one-time benefit from the revaluation of deferred tax assets in China and the absence of a prior-year gain on equity sale, partially offset by increased U.S. taxes on international operations[146] - The company is evaluating the impact of the newly enacted H.R. 1 tax law changes and the Pillar Two framework on its future effective tax rate[148][149] Net Income This section provides an analysis of the drivers behind the changes in net income for the reporting periods | Net Income (Millions USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | 87 | 64 | 149 | 130 | | Net income margin | 9.5% | 7.2% | 8.3% | 7.2% | - Net income for Q2 2025 increased by $23 million, driven by lower interest, tax, SG&A, and other expenses, and higher non-operating income, partially offset by decreased gross profit and the prior year's gain on equity sale[151] - Net income for YTD 2025 increased by $19 million, primarily due to lower interest and SG&A expenses, higher gross margin, and increased non-operating income, partially offset by higher other expense and the prior year's gain on equity sale[152] Non-GAAP Measures This section presents and reconciles non-GAAP financial measures, specifically EBIT and Adjusted EBIT, to GAAP net income EBIT and Adjusted EBIT This section introduces the company's transition to Adjusted EBIT as a key non-GAAP metric and provides its reconciliation - In 2025, the company transitioned its non-GAAP reporting metric from Adjusted EBITDA to Adjusted EBIT to better reflect core operating performance and align with industry practices[154] | Metric | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net income | 87 | 64 | 149 | 130 | | Interest expense, net of interest income | 23 | 61 | 52 | 90 | | Tax expense | 15 | 23 | 38 | 38 | | EBIT | 125 | 148 | 239 | 258 | | Adjusted EBIT | 124 | 123 | 255 | 244 | Adjusted EBIT for the Three Months Ended June 30, 2025 This section analyzes the drivers of changes in Adjusted EBIT for the three months ended June 30, 2025 - Adjusted EBIT increased by $1 million year-over-year for Q2 2025, driven by $11 million from foreign currency impacts, $11 million from productivity, $4 million from commodity, transportation, and energy deflation, and $1 million from higher volumes[163] - These increases were partially offset by $25 million of unfavorable product mix and $2 million of lower pricing net of inflation pass-through[163] Adjusted EBIT for the Six Months Ended June 30, 2025 This section analyzes the drivers of changes in Adjusted EBIT for the six months ended June 30, 2025 - Adjusted EBIT increased by $11 million year-over-year for YTD 2025, primarily from $29 million of operational productivity, $13 million of commodity, transportation, and energy deflation, $4 million of favorable foreign exchange impacts, and $2 million price net of inflation pass-through[168] - These gains were partially offset by $32 million unfavorable product mix and $6 million of lower sales volume from diesel and aftermarket products[168] Liquidity and Capital Resources This section discusses the company's liquidity position, capital resources, and cash flow activities Overview This section provides an overview of the company's cash, credit facilities, and long-term debt | Liquidity Metric (Millions USD) | June 30, 2025 | December 31, 2024 | | :------------------------------ | :------------ | :---------------- | | Cash and cash equivalents | 232 | 125 | | Revolving Facility - available borrowing capacity | 630 | 600 | | Term Loan Facilities - principal outstanding | 690 | 692 | | Senior Notes - principal outstanding | 800 | 800 | - The company refinanced its $692 million 2021 Dollar Term Facility with a new 2025 Dollar Term Facility and replaced its $600 million revolving facility with a new $630 million New Revolving Facility, enhancing its financing structure[171] - Management expects adequate liquidity from cash flows, term loan borrowings, 2032 Senior Notes, and the New Revolving Facility to support operations and investments in new technologies, particularly zero-emission technologies[172] Share Repurchase Program This section details the company's share repurchase program and activity during the period - A $250 million share repurchase program was authorized for 2025. As of June 30, 2025, $52 million of Common Stock had been repurchased, with $198 million remaining[173] Cash Flow Summary for the Six Months Ended June 30, 2025 This section summarizes cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 | Cash Flow Activity (Millions USD) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Operating activities | 214 | 210 | | Investing activities | (26) | 18 | | Financing activities | (89) | (384) | | Effect of exchange rate changes | 8 | (5) | | Net increase (decrease) in cash | 107 | (161) | - Cash provided by operating activities increased by $4 million, driven by favorable working capital changes and higher net income[174] - Cash used for investing activities decreased by $44 million, primarily due to prior year proceeds from the sale of an unconsolidated joint venture and reduced cross-currency swap proceeds, partially offset by lower capital expenditures[175] - Cash used for financing activities decreased significantly by $295 million, mainly due to lower debt repayments and share repurchases compared to the prior year, partially offset by proceeds from the Credit Facilities[176][177] Off-Balance Sheet Arrangements This section confirms the absence of material off-balance sheet financial arrangements - The company does not engage in any off-balance sheet financial arrangements that are material to its financial condition or results of operations[178] Critical Accounting Policies This section refers to the company's critical accounting policies as disclosed in its annual report - The company's critical accounting policies are consistent with those disclosed in its 2024 Form 10-K[179] Recent Accounting Pronouncements This section directs readers to Note 2 for information on recent accounting pronouncements - Information on recent accounting pronouncements is provided in Note 2 to the Consolidated Interim Financial Statements[180] Special Note Regarding Forward-Looking Statements This section cautions readers about forward-looking statements and the inherent risks and uncertainties that could cause actual results to differ - The report contains forward-looking statements regarding future results, market expectations, financial position, and business strategy, which are subject to various risks and uncertainties[181] - Readers are cautioned that actual results may differ materially from these statements due to factors such as industry evolution, competition, reliance on major customers, economic conditions, and international operations risks[181] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, particularly currency risk, and assesses the potential impact of hypothetical changes in exchange rates on financial instruments - As of June 30, 2025, the net fair value of financial instruments exposed to currency risk was $177 million[183] - A hypothetical 10% adverse or favorable change in currency exchange rates could result in a potential loss of $288 million or a gain of $(265) million, respectively[183] - There have been no other material changes to the company's quantitative and qualitative disclosures about interest rate or commodity price risks since the 2024 Form 10-K[184] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[186] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2025, that materially affected or are reasonably likely to materially affect these controls[187] PART II. OTHER INFORMATION This part provides additional information, including legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings This section addresses the company's involvement in various legal actions, stating that while outcomes are uncertain, no material adverse effect on financial position, results of operations, or cash flows is currently anticipated - The company is involved in various lawsuits, claims, and proceedings, but does not currently believe they will have a material adverse effect on its financial position, results of operations, or cash flows[189] - Accruals for potential liabilities are made when a liability is probable and reasonably estimable, consistent with GAAP[189] Item 1A. Risk Factors This section confirms that there have been no material changes to the risk factors previously disclosed in the company's 2024 Form 10-K - There have been no material changes to the risk factors described in the company's 2024 Form 10-K[191] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activity under its authorized program for the quarter ended June 30, 2025 - The Board of Directors authorized a $250 million share repurchase program valid from January 1, 2025, until December 31, 2025[192] | Period | Total Number of Common Shares Purchased | Average Price Paid per Share ($) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Program ($) | | :-------------------------- | :------------------------------------ | :------------------------------- | :----------------------------------------------------------------------- | | April 1, 2025 – April 30, 2025 | 1,465,679 | 8.47 | 207,749,711 | | May 1, 2025 – May 31, 2025 | 49,907 | 9.95 | 207,253,171 | | June 1, 2025 – June 30, 2025 | 875,714 | 10.22 | 198,305,673 | | Total | 2,391,300 | 9.14 | 198,305,673 | Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - This item is marked as 'Not applicable,' indicating no defaults upon senior securities[194] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - This item is marked as 'Not applicable,' indicating no mine safety disclosures[195] Item 5. Other Information This section provides additional information, specifically noting that no Rule 10b5-1 or non-Rule 10b5-1 trading agreements were adopted or terminated by directors or Section 16 officers during the quarter - No director or Section 16 officer adopted or terminated a 'Rule 10b5-1 trading agreement' or 'non-Rule 10b5-1 trading agreement' during the three months ended June 30, 2025[196] Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including corporate governance documents, certifications, and financial data in XBRL format - Exhibits include the Third Amended and Restated Certificate of Incorporation, Fifth Amended and Restated By-Laws, certifications from the Principal Executive Officer and Principal Financial Officer (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act), and financial information formatted in Inline XBRL[197] Signatures This section contains the official signatures of the company's President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, certifying the report's submission - The report was signed on July 24, 2025, by Olivier Rabi